April 12, 2011 COMMENTS OF THE UTILITY AIR REGULATORY GROUP ON EPA’S PROPOSED ACTION AND SUPPLEMENTAL STATEMENT OF BASIS RELATING TO THE PREVENTION OF SIGNIFICANT DETERIORATION PERMIT FOR THE AVENAL ENERGY PROJECT The Utilit y Air Regulatory Group (“UARG ”) submi ts the fo llo wing comments on the U.S. Environmental Protection Agency’s (“ EPA” or “Agency”) proposed action and Supplemental Statement of Basis related to the Prevent io n of Significant Deterioration (“PSD”) permit applicat io n of the Avenal Power Ce nt er, LLC (“APC”) fo r the Avenal Energy Pro ject (the “Pro ject”) (March 2011). EPA proposes to approve APC’s PSD permit applicat io n fo r the Project without requiring a demonstration that the source will not cause or contribute to a vio lat io n of the 1
- hour primary national ambient air qualit y s tandard (“NAAQS”) fo r ni trogen dioxide (the “Final NO 2 Rule”). EPA also proposes not to require the permit applicant to meet PSD emissio n limitat io ns fo r greenhouse gases (“GHGs”) or to show that the proposed source
w ill not cause or contribute to a vio lation of the 1
- hour NAAQS for sulfur dioxide (“SO 2 ”). For th e reasons set forth herein, UARG supports the proposed action. UARG is a vo lu nt ary, ad hoc , not - fo r - profit association of electric generating co mpanies and o rganizat io ns and nat io nal trade associat io ns. UARG’s purpose is to participate on behalf of it s members co llect ively in EPA’s rulemakings and other proceedings under the Clean Air Act (“CAA” or “Act”) that affect the interests of electric generators and in lit igat io n arising fro m those proceedings. Since 1977, UARG has part ic ipated in virtually all key rulemakings, related lit igat io n, and other arenas of po licy development under the Act that affect the interests of electric generators . For example , UARG submi tted comments in the rulemaking the culminated in t he promulgation of the Final NO 2 Rule and has participated extensively in EPA rulemakings and permit appeal proceeding s regarding applicat ion of PSD requirements to GHGs , as well as- 2
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on the Agency’s ru le making and other proceedings on the 1
- hour SO 2 NAAQS
. Further, UARG has petit io ned EPA to reconsider certain aspects of the Final NO 2 Rule. 1 EPA has yet to take action on th e UARG Pet it io n fo r Reconsiderat io n. I. Background EPA received the permit ap plication for the Project in February 2008. Thereafter, on March 19, 2008, EPA notified APC that the permit applicat io n was com plete. On June 16, 2009, EPA issued for comment a proposed permit for the Project, grant ing approval to APC , pursuant to EPA’s PSD rules , to construct and operate the facilit y. At the time EPA proposed to issue th e permit, EPA found that the Project’s emission s would not cause or contribute to vio lations of any of th e NAAQS that appli ed at that time wi th respect to the

“ attainmen

t ” pollutants regulated under the PSD permit. Subsequently, on February 9, 2010, fo llo wing the close of the public co mment period on the proposed permit , EPA published the Final NO 2 Rule, establishing a primary NAAQS for NO 2 based on a 1
- hour averaging time . The Final NO 2 Rule became effective on April 12, 2010. On April 1, 2010, EPA issued a memorandum explaining that any PSD permit issued by EPA on or after the April 12, 2010 effective date of the new NAAQS mu st be supported by a demonstration that the source will not cause or contribute to a vio lat io n of that NAAQS . See Memorandum fro m S tephen D. Page, EPA Office of Air Qualit y P lanning and Standards, “Applicabilit y o f t he Federal Prevent io n of Significant Deterioration Permit Requirements to New and Revised National Ambient Air Qualit y Standards” (Apr
. 1, 2010) (the “Page

1 See Petit io n fo r Reconsiderat io n of the American Petroleum Inst itute and the Utilit y Air Regulatory Group of th e Final Rule on the Primary National Ambient Air Qualit y S t andards for Ni trogen Dioxide, Docket No. EPA
- HQ
- OAR
- 2006
- 0922
- 0735.1 (Apr. 12, 2010) (“UARG Peti tion for Reconsiderat io n”); as supplemented, Docket No. EPA
- HQ
- OAR
- 2006
- 0922
- 0736.1 (June 1, 2010) (“UARG Supplemental Petit io n”).- 3
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Memorandum”). 2 The Page Memorandum noted that, in contrast to past NAAQS rulemakings, EPA in the case of the Final NO 2 Rule had “not promulgate[d] a grandfathering provisio n . . . f or permits in process but not yet issued as of April 12, 2010.” 3 See Page Memorandum at 3. Thus, said EPA, there were “no except io ns under 40 C.F.R. § 52.21 in this case” because the Agency “has not adopted a grandfathering provisio n applicable to the 1
- hour NO 2 NAAQS that would enable the required permit to be issued to prospective sources in the absence of [an] ambient air qualit y d emonstration . ” Id. Now, however, EPA states that it “has found that applicants seeking PSD permits to construct stationar y sources of air pollut io n have experienced unforeseen challenges with the preparation and review of information to predict the impact of proposed sources on hourly NO 2 concentrations.” Supplemental Public Notice, Avenal Energy Pro ject, Permit Applicat io n No. SJ

2 In its supplement to its Peti tion for Reconsideration of the Final NO 2 Rule, UARG extended “the relief requested in the Petition to include withdrawal o f t he Page Memorandum at th e same t ime that the Agency grants the petit io n.” UARG Supplemental Petit io n at 2.

3 EPA stated that it “generally interprets the CAA and EPA’s PSD permitt ing program regulat io ns to require that each final PSD permit decisio n reflect considerat io n of any NAAQS that is in effect at the time the permitting authorit y issues a final permit,” and that, “[a]s a g eneral matter, permitting and licensing decisio ns of regulatory agencies must reflect the law in effect at th e time the agency makes a final determinat io n on a pending applicat io n.” Page Memorandum at 2. “Consistent with such interpretations,” EPA contin ued, the Agency had “previously concl uded that the relevant provi sions cover any NAAQS that is in effect at the time of issuance of any permit.” Id. At th e same time, EPA observed, “under certain circumstances” the Agency has previously allowed proposed new major sources and major modificat io ns that have submitted a complete PSD permit application before the effect ive date of new requirements under the PSD regulat io ns, but have not yet received a final and effect ive PSD permit, to continue relying on inf ormat io n already in the applicat io n rather than immediately having to amend applicat io ns to demonstrate com pliance wit h t he new PSD requirements. Id. at 3. The Page Memorandum then went on to provide examples of instances in which EPA afforded “grandfathe red” status to PSD permit applicat io ns pursuant to transit io n provisio ns expressly included in the PSD rules. Id.- 4
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08
- 01 (“Supplemental Public Notice”) at 2. Due to “concerns about these challenges expressed by permit applicants,” the Agency cont inues, EPA has init iated “ a policy review to determine whether addit io nal act io n by EPA [i s] necessary to f acili tat e the preparation of informat io n to predict hourly NO2 concentrations” and to “enable EPA and other permitt ing authorities to com plete action on pending PSD permit applicat io ns in a timely manner.” Id. “As part of this policy review” and in recogni tion o f “ EPA’s statutory obligat io n” under CAA § 165(c) “to grant or deny a co mp lete PSD permit applicat io n within one year ,” as well as “other circumstances present in this case,” EPA says that it “ has determined that i t is appropri ate to grandfather,” on
an ad hoc , individualized basis, “th e PSD permit applicat io n fro m APC fro m t he requirement to demonstrate that the proposed facilit y will not cause or contribute to a vio lat io n of the hourly NO 2 standard.” Supplemental Public Notice at 2. Accordingly, EPA is now “propos[ing] to approve APC’s PSD permit applicat io n fo r the Project without requiring” such a demo nstration. Id. In addit io n, EPA says it “believes the factors that justify such an approach for the hourly NO2 standard also provide a basis not to subj ect” the APC permit applicat io n to “addit io nal permitting requirements that have taken effect fo llowing the promulgation o f t he hourly NO2 NAAQS.” Supplemental Public Notice at 2. For that reason, EPA says it “will not require the source to meet emissio n s limitat io ns for greenhouse gases or to demonstrate that it will not cause or contribute to a vio lat io n of the NAAQS for hourly concentrations of sulfur dioxide.” Id
. EPA acknowledges that this “determinat io n represents a change in the posit io n” that the Agency “has taken in this matter and in previous interpretive statements issued by EPA.” See Supplemental Public Notice at 2. Because of this, EPA “believes it is necessary and ap propriate- 5
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to provide the public with an opportunit y t o c omment” on its pr oposed action “before the Agency issues a final decisio n on the pending permit application.” Id. II . EPA Should Take Final Action T o Approve APC’s Permit , a s No Lawful Basis Exists for the Agency To Apply to Any Source Any New PSD Requirement that Takes E ffect More than One Year After That Source’s PSD Permit Application Was Complete . UARG supports EPA’s proposal to approve APC’s PSD permit applicat io n fo r the Project without requiring a demonstration that the source will not cause or contribute to a vio lat io n of the 1
- hour primary NAAQS for NO 2 or the 1
- hour NAAQS for SO 2 , and without requi ring the source to meet any PSD requirements for GHGs, fo r the simple reason that it wo uld be unlawful for EPA to impose such requirements on the source. Wit h respect to the NAAQS, UARG notes at the outset that, as it has previously argued, applicat io n of the Agency’s decisio n to apply immediately the requirements of the PSD program to the 1
- hour NO 2 NAAQS or the 1
- hour SO 2 NAAQS is o f questionable legalit y . Se e , e.g. , UARG Petition for Reconsiderat io n at 12 n.9. Section 161 of the CAA provid es that the PSD program applies “in each regio n (or portion thereof) designated . . . pursuant to [CAA § 107] as attainment or unclassifiable ” (em phasis a dded). No area is curren tly designated as either attainment or unclassifiable for the 1
- hour NO 2 NAAQS, and EPA is not scheduled to make any such designat io ns unt il January 2012. 4 Li kewise, no area is designated as attainment or unclassifiable for the 1
- hour SO 2 NAAQS at this time. I n advance of those designatio ns, it is not clear that the CAA authorizes EPA to impose th e requi

rements of the se NAAQS to any proposed source, including the Project, seeking a PSD permit.

4 See 75 Fed. Reg. at 6521; EPA, “Final Revisio ns to the Primary Nat io nal Ambient Air Qualit y S tandard for Nitrogen Dioxide (NO 2 )” at 15 (Jan . 2010), available at ht tp://www.epa.gov/air/nitrogenoxides/pdfs/20100124presentation.pdf.- 6
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As EPA notes in its Supplemental Statement of Basis, the Proj ect is a “well
- controlled, natural
- gas fired electric generat ing facilit y” that “will apply BACT for NO 2 and not cause or contribute to a vio lat io n of the NAAQS that were in place before promulgat io n of the hourly [NO 2 and SO 2 ] standards. ” Supplemental St at ement of Basis at 6. UARG notes that the fact that thi s particular facilit y happens to be “natural
- gas fired” is beside the point; a proposed new source’s cho ic e of fuel is irrelevant to the question which, if any, new requirements apply under th e PSD provisio ns. But th e key point is that EPA has ident ified no provisio n of the CAA that would requi

re or authorize it to apply at this time the requirements of the later
- adopted NO 2 and SO 2 NAAQS . Alt hough EPA state s that the CAA “does not expressly authorize” it to “waive the substant ive permitt ing criteria when a [PSD] permit applicat io n has not been granted or denied wi thin the one
- year deadlines” specified in CAA § 165(c), id. at 10, th e Agency fail s to engage here the fundamental quest io n
– namely, whet her EPA is authorized , m uch less required, by the CAA to include in those “substantive permitting criteria” requirements related to NAAQS and to GHGs where those requirements took effect, if at all, only after the one
- year deadline in section 165(c) had ex

pired
. There is in fact no requirement and no authorit y in t he CAA to penalize a PSD permit applicant by imposing on that applicant any new requirement that arises after EPA has defaulted on its clear - cut nondi scretionary statutory duty to grant or deny a co mp lete PSD permit applicat io n within no more than one year after it wa s submitted in co mp lete fo rm . EPA is pr oceeding under the incorrect assumption that it is under “conflict ing statutory obligat io ns” wit h respect to the Project

– a co nflict that it s proposed permitting act io n ostensibly is designed to resolve
. Alt hough UARG supports EPA’s proposal to tak e final act io n on the APC permit as has been proposed wit hout applying the new NAAQS and GHG requirements , there is no “conflict”- 7
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such as EPA describ es. EPA cannot, consistent with the statute, impose on PSD permit applicants new requirements that take effect after the first anniversary o f “t he date of filing of [the] completed applicat io n.” CAA § 165(c). For the foregoing reasons , EPA should grant th e APC permit applicat io n fo r the Proj ect and should at the same t ime (i) grant UARG’s Petition for Reconsiderat io n and (ii) rescind the Page Memorandum. III. The Complications that EPA Identifies with Implementing the Requirements of the Final NO 2 Rule at this Time Warrant Granting the APC Permit Application and Applying a Consistent Policy to All Other Similarly Situated Facilities. EPA ident ifies in its Supplemental Statement of Basis certain “co mp licat io ns” attributable to its having made the Final NO 2 Rule effect ive as of April 12, 2010, without also “adopting a transit io nal provisio n fo r pending permit applications completed prior to this date.” Supplemental Statement of Basis at 7. EPA explains that, alt hough it had “expected that permit applic ants would readily be able to determine, based on existing EPA modeling guidelines, how to expedit io usly co mp lete the analysis necessary to show that stationary source construction would not cause or contribute to vio lat io ns of the hourly NO 2 NAAQS,” the Agency now recognizes that “some PSD permit applicants have experienced unforeseen challenges with the preparation of sufficient informat io n to predict the impact of the proposed source on hourly NO 2 concentrations in accordance wi th PSD modeling guidelines .” Id. In particular, EPA notes, “[t] hese challenges have resulted fro m t he fact that to address th e hourly NO 2 NAAQS, many permi t applicants need to conduct a cumulat ive air qualit y impact assessment,” which assessment, in turn, “necessitate[s] the appl ication of mo deling techniques that are more refined than those that have previously been adequate to demonstrate com pliance wit h t he annual NO 2 standard.” Id. at 7
- 8 . “ This level o f refinement,” EPA points- 8
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out, “requires acquisit io n and analysis of addi tional data inputs” that, while available, are “not as readily accessible to permit applicants as has been the case with other data used in air qualit y mo deling for annual NO 2 concentrations.” Id. at 8. Because of this, EPA acknowledges, “[p]ermit applic ants and permitt ing authorities have needed mo re time than EPA expected to develop familiarit y w it h t hese refined approaches and to obtain and analyze the necessary data.” Id. It i s in part due to “th ese complicat io ns,” EPA states , that “APC’s efforts to com plete a sufficient modeling demo nstration” wi th respect to the new NAAQS have “produced unant ic ipated delays in the review of the PSD permit application submitted by APC.” Id. “ The potential fo r such a circumstance to arise,” the Agency contends, “wa s not apparent when EPA com pleted the hourly NO 2 NAAQS without grandfathering pending PSD permit applicat io ns at that time.” Id. UARG concurs that the “complications” EPA describes warrant the action EPA proposes to take wit h respect to the APC PSD permi t. UARG dispute s, however, the Agency’s representation that th e “challenges” that permit applicant s are now fac ing were “unforeseen.” To th e contrary, in it s Peti

tion for Reconsiderat io n, UARG notes that EPA received comments on th e proposed NO 2 Rule that p ointed to the need for the regulat io n to address implementation of any new NO 2 NAAQS through the PSD program. See Peti tion for Reconsiderat io n at 8
- 11. Amo ng other things, UARG has requested that EPA both acknowledge the lack of screening and refined ai r qualit y mo dels that have been validated for predict ing 1
- hour NO 2 co ncentrations, and def er any requirement that PSD permit applicants model co mp liance with the 1
- hour NO 2 NAAQS until models suitable for that purpose have been developed, demonstrated, and- 9
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incorporated into EPA’s Guideline on Air Quality Models , using appropriate rulemaking procedures. Id. at 11. In light of EPA’s concessio n that the se very issues are implicated in the continuing delay

– in vio lat io n of § 165(c) of the Act

– of EPA act io n on the APC permit , no basis exists fo r EPA not to grant UARG’s Petit io n fo r Reconsiderat io n as well. Other similarly si tuated facilit ies are ent it led to the same relief that EPA proposes to extend to APC. 5 IV. EPA Is Authorized T o Proceed by Individua lized Adjudication. Finally, that EPA , in (or in connection wit h) the NO 2 NAAQS rulemaking, chose not to adopt, as it has in previous NAAQS rulemakings, “transit io n” provisio ns that would apply generally to all sources that had submitted complete PSD permit applicat io ns at the time the Final NO 2 Rule became effective does not preclude the Agency from taking act io n now to afford th e Project , and similarly situated sources, “grandfathered” status. EPA’s recognit io n t hat it is authorized under the CAA to adopt, in conj unction wi th rulemaking s to prom

ulgate or revi se NAAQS , such transit io n provisio ns fo r all sources reflects a recognit io n t hat EPA may al ternat ively take the sort of individualized , adj udicatory act io n it is proposing here wi th respect to the P roj ect. I t was long ago settled, as a fundamental principle of administrative law, that “the cho ice made between proceeding by general rule or by individual, ad hoc lit igat io n is o ne that lies

5 Such relief should include, as well, recognizing that similarly situated facilit ies need not meet the GHG requirements and need not demonstrate no vio lat io n of the 1
- hour SO 2 NAAQS. As EPA explains, “[i]f not for the delays associated with addressing the hourly NO2 NAAQS requi rements,” the Agency “would have completed action on the APC permit applicat io n prior to January 2, 2011 and the applicat io n would not have been subject to the greenhouse gas requi rements.” Supplemental Statement of Basis at 8. So, too, with respect to the 1
- hour SO 2 NAAQS. Id. at 9 (“EPA would have been able to complete action on this permit applicat io n before August 23, 2010 if it had not requested additional information fro m Avenal to address the hourly NO2 NAAQS and experienced the complications described.”).- 10
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primarily in the informed discretion o f t he administrative age ncy .” SEC v. Chenery Corp. , 332 U.S. 194, 20 3 (1947). This is so, the Supreme Court explained, because “[ n]o t every principle essent ia l to the effect ive administration of a statute can or should be cast immediately into the mo ld of a general rule. ” Id. at 20 2 . Rather, “[s] ome principles must await their own development, while others must be adjusted to meet particular, unforeseeable situations. ” Id. For that reason, “an a dministrative agency must be equipped to act either by general rule or by individ ual order. ” Id. As the Court observed, “problems may arise in a case which the administrative agency could not reasonably foresee, problems which must be solved despite the abs ence of a relevant general rule.” Id. At the same time, “th e problem may be so speci alized and varying in nature as to be impossible o f capture within the boundaries of a general rule. ” Id. at 203. It is for those situations that an agency “ must retain power to deal wit h t he problems on a case - to - case basis if the administrative process is to be effect ive. ” Id. EPA’s Supplemental Statement of Basis ident ifies the various grounds that, in the Agency’s view, support its “grandfathering” the APC PSD permit fro m t he requirements that the 1
- hour NO 2 and 1
- hour SO 2 NAAQS and the GHG provisio ns otherwi se arguably would impose. Alt hough UARG concurs that the circumstances EPA cites (as well as other factors) fully justify th e Agency’s proposed action here , as UARG also explains above and in it s Pet it io n fo r Reconsiderat io n, there are o th er facilit ies for which the same relief is warranted. Accordingly, unless EPA immediately grants UARG’s Pet it io n for Reconsiderat io n or rescinds the Page Memorandum, EPA should, in issuing the final APC PSD permit, acknowledge that all similarly si tuate d facilit ies are ent it led to similar “grandfathered” sta tus and to the same relief.